Business Failure 5: Too Close to the Edge or Too Much Risk

This continues our series on reasons businesses may fail and how to avoid them

People hear that businesses fail because they overextend themselves. Frequently, the overextension relates to the business owner taking their business too close to the edge or too risky. Sometimes, business owners succumb to the temptation of high profits or high return on investment which pushes them to take their business to the edge or to take risks with the promise of high profits or high revenues.

Some Take it Too Close to the Edge or Make It Too Risky

Why do business owners take the business too close to the edge of the cliff? What would induce a business owner to put their business at risk?  Answers vary:

• Sometimes the higher the risk, the higher the possible profit or return on investment
• Many times the business owners keep extending their financial burden in hopes that it will eventually pay off until they suddenly find themselves at the edge or even over the edge financially
• Frequently, the same sense of adventure or risk that enthuses an entrepreneur drives them to take unacceptable risks or push their companies to the edge
• Occasionally, the business owner, a technician, does not possess the financial or managerial skills to realize the risk or how certain decisions will send them over the edge

Whether the business owner does it on purpose or in ignorance, taking too many risks or getting too close to the edge can cause business failure. Occasionally, however, the risk pays huge financial rewards.

Avoid Too Much Risk or Taking it Too Close to the Edge

You can avoid too much risk or going too far with some discretion:

• Establish clear guidelines for how much risk or how close to the edge you will go before you act
• Create a secondary safety net to guide how to react when you reach your guideline
• Act with a partner or professional financial consultant to advise you about when you get too close to the edge or too risky

Saturday we discuss how too much success may dull your decision making process